Booze, Breweries, Series Bs and Buyouts

Garrett Black
February 19, 2014

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When you first open a cold beer after a long week, we know the first thought to cross your mind: Does private equity or venture capital somehow play a role in this delicious, relaxing beverage? (Well, it crosses ours.) To find out exactly what role PE and VC firms play in your favorite brews and wines, we tapped the PitchBook Platform.

Since 2009, the number of deals and capital invested in producers and purveyors of alcoholic beverages has been as spotty as James Bond’s liver. Much like the quality of a series of Friday nights, the 198 deals and exits that occurred in the PE and VC universes between 2009 and early February this year vary considerably, with a few blowouts skewing the overall size and quantity. Rather like St. Patrick’s Day, or Mardi Gras.

PE: Anheuser-Busch InBev and Oriental Brewery

Source: PitchBook

Unsurprisingly, some of the biggest buyouts revolve around Anheuser-Busch InBev, which has more than 200 brands in its global portfolio. 2009 saw two carveouts of AB InBev: the $3 billion sale of its Central and Eastern European operations to CVC Capital Partners, as well as Kohlberg Kravis Roberts’ and Affinity Equity Partners’ purchase of Oriental Brewery for $1.8 billion. AB InBev divested those businesses in order to assuage the debt burden generated by InBev’s $52 billion acquisition of Anheuser-Busch in 2008.

AB InBev recovered from its debt overindulgence, or so one could judge from its recent decision to exercise a contractual right in January to buy Oriental Brewery back for $4.88 billion. AB InBev assets were even related to Molson Coors’ biggest deals in Europe, if somewhat tenuously: CVC Capital later sold some of the Central European operations to Molson Coors for $3 billion in 2012.

Other large PE-backed brewing deals include Mey Icki Sanayi ve Ticaret, a Turkish alcohol producer sold by TPG Capital and Actera Group for $2.1 billion in August 2011; North American Breweries, which was acquired by Florida Ice and Farm Company for $388 million from KPS Capital Partners in December 2012; Oaktree Capital Management-backed Stock Spirits’ IPO in October 2013; and CoHo Distributing’s $500 million SBO by Meritage Group in 2012.

If those giants are left out, capital invested and deal and exit count diminish considerably. The chart below shows that like an insufficiently supplied house party after 11 p.m., all the good stuff was gone. And in 2011, everyone had a hangover.

VC firms are not quite as interested in the big breweries. They target the smaller breweries, of which there are more than enough to go around. After all, the number of breweries in the U.S. is set to reach its highest levels since the early 1870s, with 2,722 operating at the end of 2013. More than 400 breweries opened in 2013 alone. 1,376 are microbreweries, with 1,202 brewpubs, 120 regional breweries (annual production between 15,000 and 6 million barrels) and 24 large breweries (over 6 million barrels produced annually), according to the Brewers’ Association.

Given VC’s usual scope of pursuing smaller deals in support of innovation, it makes sense that the largest of those breweries fly under venture capitalists’ radar. Yet even so, several deals involving breweries occurred in the past four years, namely, Catoctin Creek Distilling Company, Gallia 1890 and Independence Brewing.

But what’s making more news in VC these days is not actual alcohol production, but the companies that enable the art of drinking, for example, one that ships whiskey crates to your home (sadly, that company is purely hypothetical, and yes, it is perfectly normal to order whiskey in crates).

If we expand our search to include retailers, apps and online marketplaces, we get a more complete picture:

Source: PitchBook

The fact that capital invested fell so drastically in even years is certainly an odd statistic but overall growth is quite steady, with potentially more to come. The trend in capital invested is possibly attributable to a delay in social platforms and online marketplaces for wine and beer gaining VC funding traction; 2012 saw the first spike in early stage and seed funding deals for such companies, before deal size grew to match. The company responsible for the spike and lion’s share of funding in 2011 was Lot18, which raised $43.7 million that year.

Overall, this particular sector seems to unite a potent cocktail: humanity’s timeless love of booze, the latest trends in customer service and social apps. And thus, it is primed to bubble with activity for some time. After all, something tells me enabling the art of drinking is a profitable, recession-proof field. As long as, that is, the company in question doesn’t fall afoul of party-crushing regulations.